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Are we close to entering a recession?

With historic inflation, declining stock market, increased interest rates and war in Ukraine, experts predict it could be declared soon.

AUSTIN, Texas — With interest rates and inflation rising and consumer confidence slipping, experts say a recession could happen between this year and 2023. 

The Central Texas Food Bank is seeing the impacts of soaring inflation from both ends.

"Just even in the past four months, we've seen about a 20% increase in the need for Central Texas Food Bank Services," said CEO Sari Vatske. 

Food prices rose almost 12% year over year, according to federal data. The average price of gas is at a historic high of $5.01. 

"We were paying over $1 for beef and now it's over $2.30," said Vatske. "So what our families are facing, we're facing, you know, the similar challenges." 

To combat inflation, the Federal Reserve approved the largest interest rate increase since 1994. University of Texas economics professor Dirk Mateer said this mix could send us into a recession before the year is over.

"This is going to be a recession created by the desire to get rid of inflation," said Mateer.

The National Bureau of Economic Research said a recession typically happens when we see two consecutive negative gross domestic product quarters, but Mateer said it recently decided to define a recession once they see it.

"Which means it's now ambiguous," said Mateer.

We are halfway there if we look at the historical definition of two consecutive negative gross GDP quarters.

"So we actually contracted [negative gross GDP] in the first quarter this year," said Mateer. "That was a surprise to a lot of people. The data on the second quarter is not in yet, so we don't know if we're going to get two consecutive quarters where we contract or not."

While we have met the inflation criteria, Mateer said we are still seeing low unemployment and good consumer spending, which are clear signs we are not in a recession yet. 

Once people start pulling back on spending, Rice University fellow in public finance Jorge Barro said it could trigger a recession. 

"Some people say that recessions can be self-fulfilling prophecies that to some extent you may anticipate a recession so intensely that it actually ends up causing a recession," said Barro. "People scale back expenditures. Firms end up hiring at a slower rate in anticipation of the likelihood of a recession."

High consumer confidence is important for combating a recession, but Mateer said right now, it's the lowest we've seen in 50 years. 

"So economists are keeping track of consumer sentiment for the last 50 years," said Mateer. "At no point in the last 50 years have consumers been more convinced that the economy was in bad shape and that psychology affects how markets perform. So when the psychology gets that bad, it's almost like it's predestined to be something about a significant downturn." 

If a recession happens, both experts said there is hope that it won't be as bad as 2008. We have better job-finding websites and after the rise in home prices, owners have more value in homes to tap into.

"People saved a lot more during the pandemic," said Barro. "The savings rate really shot through the roof and people built up a big buffer stock of financial assets." 

No matter what happens, Central Texas Food Bank said it will help as much as possible and hope you will too.

"Our team is happy to provide support," said Vatske.


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